Let's see, if you're a first time home buyer in California, and you buy a newly-constructed home, you could get up to $18,000 in tax credits! But even if you're not a first-timer you can get the California credit. And that's a sweet ten grand.
California's credit (5% of the purchase price or $10,000, whichever is less) is designed to give a little kick to the home building industry--which may not be so great for those trying to sell a "used" home in the state next year. But buyers win two ways--first, the credit applies to anyone--there are no income restrictions--who buys a brand-new home. It's paid out over a three year period, and doesn't have to be paid back as long as you live in the home for at least two years.
But what if you want a home with character, a home in an established neighborhood, and not a cookie-cutter tract product? Well, you won't be able to take the credit, but you will be able to use it--as a bargaining tool. The sellers know you'd be giving it up in order to buy their home. So perhaps they can throw in a piece of furniture you like, help you with closing costs, or leave that awesome hot tub on the deck when they go.
First come, first served. That's right, the credit lasts from March 1st of this year until March 2010. OR WHENEVER CALI RUNS OUT OF MONEY. $100 million was allocated to the program and when it's gone, it's gone. So make like it's Black Friday at Best Buy and hit the ground running. Get your loan in place (FHA is probably your best bet if you have credit boogers), round up your Realtor, and find that new house (or summon your magic bargaining powers and go looking for a used one). And close on that sucker as soon as you can before the money runs out!
Start by requesting free mortgage quotes or a pre-qualification letter from our database of new home loan lenders. It's free service where you can receive up to four free mortgage quotes, and there's no obligation to you.
If you have never heard of the Mortgage Credit Certificate (MCC) programs, you're not alone. Most loan officers haven't either. Yet this deal has been made available to qualifying home buyers since the Tax Reform Act of 1984! Not only does this program put money in your pocket for the entire life of your loan, it makes qualifying for your home purchase easier. Here's how.
Most people know that mortgage interest is tax deductible. Which is great if you make a lot of money and have a high mortgage payment. If you take the standard deduction, though, paying mortgage interest instead of rent doesn't do you any good tax-wise. Enter the Mortgage Credit Certificate. These are issued by state and local governments, and you are required to get your mortgage loan through lenders that participate in the program. You have to meet certain guidelines to be eligible -- it's for people who haven't owned a home in at least three years, there are income limitations, and there is a maximum amount you can spend on your home.
With an MCC, the IRS allows you to not only deduct your mortgage interest, it gives you a credit of up to 20% of your mortgage interest against your tax liabilities. And the lender will deduct that credit from your house payment when calculating your debt to income ratios, qualifying you for a larger loan than you otherwise could. Here's an example:
You get a mortgage of $250,000 at 6.00% for 30 years with monthly principal and interest payments of $1,499 and an MCC credit rate of 20%.
In the first year, you pay a total of $14,916 of interest on your mortgage loan. Because you have an MCC, you could receive a federal income tax credit of $2,983 (20% of $14,916). If your income tax liability is $2,983 or greater, your will receive the full benefit of the MCC tax credit. If the amount of your tax credit exceeds the amount of your tax liability, the unused portion can be carried forward (up to three years) to offset future income tax liability.
The remaining 80% of mortgage interest, or $11,933, qualifies as an itemized income tax deduction.
To receive the immediate benefit of your MCC tax credit, you would file a revised W-4 withholding form with your employer to reduce the amount of federal income tax withheld from your wages and increase your take home pay by $249 per month ($2,983 divided by 12).
By applying the increase in your take home pay of $249 towards your monthly mortgage payment of $1,499, your effective monthly payment would be $1,250, ($1,499 minus $249).
This means that instead of needing an annual income of $64,243 to qualify for your mortgage (assuming a 28% housing expense to gross income ratio), you only have to earn $53,571.
So when shopping for your mortgage, check with your state to see if you qualify for an MCC. Make sure you tell your lender that you have an MCC, and make sure it participates in the program before starting your loan application.
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About Mortgage Credit Problems
Specializing in Bad Credit Mortgages… Because Life Doesn’t Always Turn Out Like You Planned. A sick child, a few late bills, or an unexpected expense can easily get you off track and your credit may suffer, but we don't think you should miss out on the opportunities available to everyone else.
Gina Pogol
About the Author:
Gina Pogol writes for an online media company about mortgage and finance. In addition to a decade in mortgage lending, she formerly consulted for Experian and other credit bureaus, and worked as a tax accountant for Deloitte. She has a BS in Financial Management from the University of Nevada.
